By Michael J. de la Merced and David Gelles
New York Times
April 14, 2014

NEW YORK — Quora, a question-and-answer website, didn’t need to raise money. It had barely touched $60 million in venture capital it accepted just two years ago.

Yet the California company, which has no revenue and just 70 employees, recently said it had raised an additional $80 million.

The eye-popping investment — for no obvious immediate purpose — was the latest example of a dynamic reshaping Silicon Valley: Startups, already flush with cash, are piling on the investment dollars.

Advertisement

Of the 100 largest venture capital rounds on record, 88 were issued within the past five years, according to CrunchBase, which tracks venture funding. Each delivered more than $50 million to the companies.

Get Talking Points in your inbox:

An afternoon recap of the day’s most important business news, delivered weekdays.

“The more capital you have in the bank, the more comfortable and confident you can be,” said Marc Bodnick, a former venture capitalist who runs Quora’s business operations. “It was really that simple.”

For technology companies eager to achieve the highest possible valuation on the road to a sale or an initial public offering, this means it is easier than ever to raise mega-rounds.

At the same time, the flood of money is inflating the valuations of early-stage companies and stoking fears of another dot-com bubble.

Advertisement

Late-stage rounds have grown enormously. The average size so far this year is $44.1 million, the highest level in the past five years and up 77 percent from last year, according to CB Insights.

This month, Airbnb, the home-sharing site, neared a deal to raise as much as $500 million from investors like TPG Growth, T. Rowe, and Dragoneer Investment Group, according to people briefed on the matter. And two weeks ago, Lyft raised $250 million from Alibaba Group of China and Daniel S. Loeb’s investment firm, Third Point — despite being widely regarded as significantly behind the leader in the car service industry, Uber.

Some venture capitalists warn the current rush of big late-stage funding could reduce entrepreneurs’ discipline. A number of investors cite Fab.com, an e-commerce startup that raised $150 million last summer at the tender age of two years.Fab’s chief executive, Jason Goldberg, defended the move as a way to open up business opportunities. Yet an overambitious expansion plan and falling sales led to a painful retrenchment.

And Alfred Lin, a partner at Sequoia Capital, conceded that investors were spending less and less time conducting due diligence.

Venture capitalists are increasingly being joined by hedge funds and private equity firms chasing huge returns. Among the top investors in fund-raising rounds that collected over $100 million are Digital Sky Technologies and Tiger Global Management, which ranked alongside traditional venture capital firms like Andreessen Horowitz and Kleiner Perkins Caufield & Byers, according to CB Insights.

Advertisement

Also joining the fray are mutual funds like T. Rowe Price and Fidelity Investments. Often, such firms are given access to promising startups with the understanding they would remain investors even after an IPO.

And some hedge funds are even transforming themselves into so-called growth capital firms that invest in older startups. Coatue Management, for example, is planning on raising a $500 million fund devoted to the kinds of investments that the firm has made in companies like Snapchat and the last-minute hotel booking site Hotel Tonight.

“In a prior generation, companies would raise just as much money as they needed as they approached the next milestone,” said Norm Fogelsong, a partner with Institutional Venture Partners. “Today companies can raise money well ahead of any actual need.”